Microsoft Gives Windows Phones One Last Shot

Microsoft will continue to manufacture smart phones for its Windows 10 Mobile operating system, but the company has thrown in the towel on the devices strategy pursued by its former CEO and will probably give up entirely unless Windows 10 reverses years of missteps in mobile, analysts said.

After Microsoft wrote down $7.6 billion of its investment in Nokia and again reorganized, it will turn to a revamped, two-part strategy, one piece older, the other relatively new, the experts argued.

Microsoft’s smart phones will follow the trailblazing of the more successful Surface tablet line, which after two years with little return hit its stride in 2014 with the debut of the Surface Pro 3. “We are moving from a strategy to grow a standalone phone business to a strategy to grow and create a vibrant Windows ecosystem that includes our first-party device family,” CEO satya Nadeela told employees in an all-hands email Wednesday [emphasis added].

In plain English, the Lumia line will be relegated to a peripheral position — the spot the Surface Pro 3 now occupies in comparison to the broader personal computing device market and best exemplified in smartphones by Google’s “hero” Nexus handsets.

“Microsoft will have something very similar to where the Surface line is now,” said Patrick Moorhead, principal analyst at Moor Insights & Strategy, in a Friday interview. “The idea will be to create inspiring hardware that motivates their ecosystem. They’ll go after the ‘halo’ effect.”

The second piece of the strategy kicked off more than a year ago when Nadella began a push to bring his company’s services and software to the mobile platforms that matter: Android and iOS. Nadella inherited that scheme from his predecessor, Steve Ballmer, who oversaw the launch of the Surface tablet line in mid-2012, trumpeted a pivot to a “devices and services” strategy later that year and in the next pushed through the Nokia acquisition during his final months.

While Nadella repudiated Ballmer’s strategy within months of taking control, Wednesday’s write-off of almost all of the Nokia acquisition was a much bigger walk-back, with the current CEO putting his firm’s money, so to speak, where his mouth was.

Even if Nadella wanted to bury the phone business, he can’t. Not yet. There’s been too much work put into Windows 10 in general — Windows 10 Mobile specifically — too much expended on emphasizing the goal of a single OS that runs on all platforms, too many resources devoted to making it easier for developers to port existing Android and iOS mobile apps to Windows.

Really pull the plug and all that would have flushed away.

“The timing just doesn’t seem right for abandoning either Microsoft’s first-party phone business or Windows Phone as a whole,” said Dawson on his research firm’s blog where he elaborated on his analysis.

In the end, Dawson foresaw Microsoft discarding all its phone hardware business. Gold said the same. The write-down, Windows 10 and a truncated portfolio are only way-stops to the inevitable. “I suspect [Wednesday’s] move is just another step along the road that eventually leads to an abandonment of this..